Silicon Valley flop Color tries to reinvent itself

<p>Color co-founder and CEO Bill Nguyen poses on the street in New York's Times Square, September 20, 2011. REUTERS/Brendan McDermid</p>

SAN FRANCISCO (Reuters) - Bill Nguyen is getting what many Silicon Valley entrepreneurs can only dream of: a second shot.

In a cut-throat industry littered with the carcasses of half-formed ideas, failed start-ups and collapsed venture firms, the one-time hotshot is unveiling the second incarnation of his Color social-pictures service on Thursday.

But this time, it’s video. And on Facebook, no less.

Nguyen is hoping a new application tied to the world’s largest social network will breathe new life into his much-maligned venture.

The plan: reintroduce Color for Facebook as a service that allows friends to “visit” with each other using video streams on their smartphones, tablets or computers.

That’s a step up from the original March launch of Color as a live photo-sharing service that never caught on with consumers and attracted plenty of vitriol from critics -- not least for raising an unusually generous $41 million in first-round funding.

“I made a mistake with the first version of my product,” Nguyen told Reuters. “You reload, and you go again.”

His new app brings a video element to Facebook. Color users can host a live stream by pointing cameras at whatever is nearby -- a birthday party, say, or beach scene -- and Facebook friends can watch events unfold.

It’s possible to limit participants by working through subgroups -- or lists -- of Facebook friends.

For now, the video has no sound. While critics may dismiss it as bare bones, Nguyen believes the silence is a strength, removing pressure from participants.

If the app succeeds in turning around Color, Nguyen will invite comparisons to a very small, select club. It includes Andrew Mason, who tweaked the idea behind his community-organizing site until he hit on daily deals with Groupon, and even Nguyen’s former boss, Steve Jobs, who revived once-struggling computer maker Apple Inc (AAPL.O).

If Nguyen fails, he will join a much larger group of dot-com entrepreneurs who led their companies to inglorious ends while burning through millions in investor cash. Think of companies like online clothing retailer boo.com, which raised $120 million before folding in 2000.

The son of Vietnamese immigrants, Nguyen has already started and sold several companies, including music-service Lala, phone-messaging service Onebox and wireless email service Seven. But he says he’d like to stick to Color for years, perhaps through an eventual initial public offering.

BIG MISTAKE

This time, Nguyen is taking it slow, rolling the app out exclusively to students at Harvard University in a test phase that he expects to last several weeks. Shades of Facebook, which also got its start at the Ivy League school.

Like Facebook, Color will one day sell ads, he said.

Nguyen is launching the app Thursday at Facebook’s f8 developer conference, helping introduce Color to the website’s more than 750 million users.

In part, that’s to avoid the debacle Color experienced earlier this year, when it started with the premise that people wanted to share photos with other people in the vicinity -- like at a concert or sporting event.

Nguyen said he realized within hours after Color’s launch that the company had made a big mistake in requiring users to essentially create new social networks to use it.

“People already have their social network,” he said.

Backers say they never lost faith in Nguyen.

“Of course it would have been better if everyone had started using it and it took off,” Bain Managing Director Mike Krupka told Reuters. “But there are very few companies of any kind that on their first product hit it big.”

Bain had invested in Nguyen’s last start-up, Lala, which evolved from a CD-sharing service to an online music company. Eventually, Apple bought it for about $85 million.

Krupka doesn’t think $41 million was too much funding for Color, but admits the cash put the company under a harsh spotlight.

Nguyen says his instinct to seize all the money -- a “landgrab mentality” -- stems from some cash-strapped years in his childhood. But he acknowledged the outsized financing also provided a cushion in climate where it is increasingly hard for start-ups to find second and third rounds of funding.

“I would have taken more if I could,” he said.

(This story is corrected in the 22nd paragraph to explain Lala’s business is a CD-sharing business.)